Glossary · UK
What is Phased Retirement?
A pension strategy of gradually drawing down pension benefits over time rather than taking the entire fund in one go, allowing the remainder to continue growing tax-free.
Full Definition
Phased retirement is an approach to pension decumulation in which a member takes pension income in stages -- drawing a portion of their pension pot over a period of years -- rather than crystallising the entire fund at once. It is most commonly used with personal pensions and self-invested personal pensions (SIPPs) under the Flexi-Access Drawdown rules introduced by the Pension Freedoms in April 2015. Each time a tranche of the pension is accessed, the member can take up to 25% of that tranche as a Pension Commencement Lump Sum (PCLS) tax-free, with the remainder entering drawdown and subject to income tax when withdrawn. By crystallising in stages, the member keeps a significant portion of the fund uncrystallised, where it continues to benefit from tax-free growth. Phased retirement also helps with tax planning: by controlling how much income is taken each year, it is possible to stay within a lower tax band, avoid triggering the tapered annual allowance, or maximise use of the personal allowance. It is particularly useful for those who are semi-retiring rather than stopping work entirely. A key consideration is the Money Purchase Annual Allowance (MPAA): once flexible income is taken from a drawdown fund, the MPAA restricts future money purchase pension contributions to £10,000 per year (2026/27). For defined benefit (final salary) schemes, phased retirement options depend on the scheme rules and are less flexible.